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National oil companies in the third petroleum era

OVERVIEW

With expansive and valuable
resources, National Oil Companies (NOCs) have been extremely profitable for decades. But with the energy industry undergoing a massive transformation, those days are quickly coming to an end. NOCs must embark on a radical transformation of their own—their very existence depends on it. As they consider their future, NOCs must address two pivotal issues: where to play in the emerging energy ecosystem; and how to win on an expanded stage of world actors. Effectively doing so is key to positioning NOCs to compete and thrive in a dramatically different energy landscape.

KEY FINDINGS

THE ENERGY INDUSTRY IS TRANSFORMING, WITH THREE DEVELOPMENTS IN PARTICULAR THREATENING NOCS’ BUSINESS:

NOCs’ profitability—and the return they generate for their host country’s government—has fallen sharply in the past five years, largely because of the drop in oil prices and NOCs’ failure to transform in response.

Oil demand is expected to peak between 2030 and 2040 at 95 to 105 MBD—which is only 10 percent to 15 percent higher than today's rate. Concurrently, the commercial development of unconventionals has forced NOCs into a market share battle for global oil output.

Innovation-driven International Oil Companies (IOCs) have become masters at exploiting complex asset classes at lower costs, which makes them rely far less on NOCs for access to reserves. This means NOCs’ resources could become stranded if not used soon.

RECOMMENDATIONS

In the face of this roiling change, NOCs must address two fundamental questions:

WHERE TO PLAY?

NOCs will need to reshape their energy portfolio along these four lines:

HOW TO WIN?

After defining their portfolio structure, NOCs will need to execute. This means determining when to pursue a factory approach versus bespoke developments. Defining a reinvigorated operating model that supports the new portfolio. And developing more-collaborative relationships across the broader energy ecosystem.